02-14-2011, 08:33 PM
Typically, due diligence assignments are awarded on the basis of a clear terms of reference (TOR). So, if this is the case, one has to follow the TOR.
For buy side advisory, Due diligence is a very detailed evaluation of an entity covering all financial, technical, commercial, environmental, and legal aspects. Due to the depth it typically carry, this is usually not carried out by a single specialist consultants. Rather, in big deals, such exercise is conducted through consortium of advisors and consultants having expertise in different aspects. However, in majority of such exercises the focal point for all consortia teams are the Financial Advisors who have to sum up the findings of other consortia team members in the advisable pricing models and adjusted balance sheet break-up values.
If you are raising this question with financial perspective, please be advised to elaborate all major assets, liabilities, differnt processes, SOPs regarding various processes, incomes, expenses, cash flows, future projections, going concern ability, condition and quality of assets, litigations, contingencies and taxation matters and pending disputes (specially off balance sheet ones) and the impact of expected resolution of all litigations and tax issues (taxation include all taxes), future capex plans and resultant operational improvements having impacts on future cash flows, product specificaions, product design and innovations, product pricing structures, revenue generation networks (such as distribution network for food industries), required compliances in connection with buyout decisions, post acquisition challenges and expansion/advertisement requirements etc etc. You can design various chapters of your report controlled through an index and headed by a cover letter. The conclusions drawn in each chapter can be summed up in the executive summary.
Please be advised that due diligence is a significant exercise which encompass very deep evaluations to surface the hidden skeletons which normally are not uncovered under routine assurance assignments and audits. The buy or sell decisions have to be based upon due diligence work, so margin of errors and omissions is NIL in case of such professional work.
Regards,
